Franchise Laws in Australia: Essential Insights for New Franchisees

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If you’re considering becoming a franchisee in Australia, understanding the legal landscape is important to ensure enduring success in your business.

Franchising is a popular business model that offers entrepreneurs the opportunity to operate under an established brand with proven systems.

In this article, we explore franchise laws, relevant legislation, and key considerations for new franchisees.

The Franchising Code of Conduct

The Franchising Code of Conduct is a mandatory industry code that applies to most franchise agreements within Australia. Administered by the Australian Competition and Consumer Commission (ACCC), this code aims to address power imbalances between franchisors (the brand owners) and franchisees (individual business operators).

Key aspects of the Franchising Code include:

1. Disclosure Requirements

• Before signing a franchise agreement, franchisors must provide specific information and documents to potential franchisees.

• During the franchise agreement, ongoing disclosures are also necessary.

2. Cooling-Off Period

• Franchisees have a limited timeframe (usually 7 days) to back out of the franchise agreement without penalty.

• This cooling-off period allows franchisees to reconsider their decision.

3. Good Faith Obligations

• Both franchisors and franchisees must act in good faith towards each other.

• This ensures fair dealing and transparency throughout the franchise relationship.

Other Relevant Legislation

In addition to the Franchising Code, franchisees should be aware of other laws that impact their rights and responsibilities:

1. Australian Consumer Law (ACL)

• The ACL protects consumers and applies to franchisees as well.

• It covers issues related to misleading or deceptive conduct, unfair contract terms, and consumer guarantees.

2. Competition and Consumer Act 2010

This overarching legislation includes provisions related to competition, consumer protection, and fair trading. The ACCC enforces these laws.

3. Other Considerations

Franchisees may also have obligations under the Fair Work Act 2009, Australian Securities and Investments Act 2001, and state/territory licensing schemes.

What New Franchisees Should Look Out For

Before signing a franchise agreement, consider the following:

Research and Due Diligence

Thoroughly investigate the franchise system, its track record, and existing franchisees’ experiences. Also seek independent advice from legal professionals and financial advisors.

Territory and Market Analysis

Understand the territory you’ll operate in and whether other franchises can open nearby. Analyse market demand and competition, and how these factors can affect your business.

Financial Projections and Costs

Assess upfront fees, ongoing royalties, and minimum product sales requirements, thereby project cash flows and understand the financial implications. Talk to an accountant or financial advisor if necessary.

Lease Conditions

Review lease terms for the franchise premises and consider location, rent, and lease duration. If the franchisor holds the lease agreement, it might be a good idea to discuss your rights as a sub-tenant, such as sharing landlord contribution, lease exit options and fees payable to the franchisor.

Dispute Resolution

Understand the methods and system that the franchisor offers for dispute resolution. Legal action and litigation are expensive options, so talk to other franchisees to understand their experience with the franchisor. Also, ask the franchisor for a list of pending lawsuits from franchisees, and discuss this with your legal team.

Key Takeout

Franchising offers exciting opportunities, but it’s essential to understand the legal framework should the franchise relationship go pear-shaped. As the investment into most franchise opportunities are significant, it is imperative to seek legal advice, understand your rights, and choose a franchise that aligns with your personal, skills, temperament and goals.

Making well-Informed decisions will greatly enhances the likelihood of achieving success in your business.

To discuss your scenario, contact us.